USITC Reports on Dominican Republic 2-for-1 Program

On September 18, 2019, the U.S. International Trade Commission ("USITC") published Publication Number: 4950 Investigation Number: 332-503 Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic.

The EIAP allows apparel manufacturers in the Dominican Republic who use U.S. fabric to produce certain apparel to earn a credit that can be used to ship eligible apparel made with non-U.S.-produced fabric into the United States duty free. The Dominican Republic-Central America-United States Free Trade Agreement Implementation Act, as amended, requires the USITC, an independent, nonpartisan, factfinding federal agency, to evaluate annually the effectiveness of the EIAP program and make recommendations for improvements.

The USITC's 10th and final annual review was submitted to the U.S. House of Representatives Committee on Ways and Means and the U.S. Senate Committee on Finance on September 17, 2019. Highlights of the report follow.

• Of the 13 registered firms, only four used the program in its final year, the same as the prior year.
• In 2018, U.S. imports of woven cotton bottoms from the Dominican Republic fell 4 percent by value to just under $1.4 million in 2018, down from $1.5 million in 2017, and fell 2 percent by quantity to 150,716 SMEs in 2018 from 153,679 SMEs in 2017. The continued decline in U.S. imports under the EIAP in its final year likely reflects a significant decline in woven trouser manufacturing capacity in the Dominican Republic, a simultaneous shift by U.S. importers to Asian suppliers during the life of the program, and anticipation of the expiration of the program on December 1, 2018. The general decline in the program’s usage after U.S. imports under the EIAP peaked in 2010 may also reflect the lack of changes made to the program despite the recommendations put forth since the first annual review.
• No new recommendations to improve the program were received during the 10th annual review of the EIAP, nor were there any known requests or efforts to extend the program beyond its expiration date. During the previous nine annual reviews, the government of the Dominican Republic, industry representatives, and users of the program consistently made three principal recommendations to improve the EIAP: 1) lower the 2-for-1 ratio of U.S. to foreign fabric to a 1-for-1 ratio; 2) expand the program coverage to enable other types of fabrics and apparel items to be included in the EIAP; and 3) change the requirement that dyeing and finishing of eligible fabrics occur in the United States.

Expiration of the Dominican Republic Earned Import Allowance Program (DR 2-for-1)

The Dominican Republic Earned Import Allowance Program (DR 2-for-1) was established as an amendment to the CAFTA-DR, under the Andean Trade Preference Extension Act of 2008 and became effective on December 1, 2008, for a 10-year period. The 10-year period expired on December 1, 2018. Entries of qualifying apparel under the DR 2-for-1 program may only qualify for duty-free treatment under the CAFTA-DR prior to the date of expiration. Entries on or after December 1, 2018, may no longer use allowances to qualify for duty free treatment under the DR 2-for-1 program.

Scheduled Expiration of the Dominican Republic Earned Import Allowance Program

The Dominican Republic Earned Import Allowance Program (DR 2-for-1) was established as an amendment to the CAFTA-DR, under the Andean Trade Preference Extension Act of 2008 and became effective on December 1, 2008, for a 10-year period. The 10-year period is set to expire on December 1, 2018.

Entries of qualifying apparel under the DR 2-for-1 program may only qualify for duty-free treatment under the CAFTA-DR prior to the date of expiration. Entries on or after December 1, 2018, may no longer use allowances to qualify for duty free treatment under the DR 2-for-1 program.

USITC Reports on DR 2-for-1 Program

On October 16, 2008, H.R. 7222, the Andean Trade Preference Extension Act of 2008, Became Public Law No: 110-436. Sec. 2 of the Act created the Dominican Republic-Central America-United States Free Trade Agreement ("CAFTA-DR") Earned Import Program–a 2-for-1 matching program for trousers assembled in the Dominican Republic. Under this program the D.R. may ship, duty-free, one square meter equivalent of trousers of third-country fabric for every two sme of trousers of U.S.-made fabric.

On August 3, 2018, the U.S. International Trade Commission ("USITC") published Investigation No. 332-503 USITC Publication 4809 Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic.

The EIAP allows apparel manufacturers in the Dominican Republic who use U.S. fabric to produce certain apparel to earn a credit that can be used to ship eligible apparel made with non-U.S.-produced fabric into the United States duty free. The Dominican Republic-Central America-United States Free Trade Agreement Implementation Act, as amended, requires the USITC, an independent, nonpartisan, factfinding federal agency, to evaluate annually the effectiveness of the EIAP program and make recommendations for improvements.

The USITC's ninth annual review was submitted to the U.S. House of Representatives Committee on Ways and Means and the U.S. Senate Committee on Finance on August 3, 2018.  Highlights of the report follow.

• Of the 13 registered firms, only 4 firms are currently using the program – one less than was reported in the last three annual reviews.

• In 2017, U.S. imports of woven cotton bottoms from the Dominican Republic fell 57 percent by value (from $3.5 million in 2016 to $1.5 million) and 80 percent by quantity (from 745,000 SMEs in 2016 to 154,000 SMEs). U.S. government sources and a former user of the program in the Dominican Republic attributed the decline in U.S. imports under the EIAP to increased imports from Haiti and increased competition from other Western Hemisphere suppliers. Haiti offers lower labor costs and trade preferences under the HOPE/HELP programs, which provide more sourcing flexibility and coverage for a wider range of products than the EIAP, as well as a tariff preference level (TPL) for woven apparel from Haiti that allows the use of third-country fabric up to a specified level.  Also, the decline in U.S. imports under the EIAP likely reflects a significant decline in woven trouser manufacturing capacity in the Dominican Republic, along with a simultaneous shift by U.S. importers to Asian suppliers during the life of the program. Finally, uncertainty surrounding the program's renewal after its expiration on December 1, 2018, may also explain why U.S. imports of woven cotton bottoms under the program reached their lowest level in 2017.

• The recommendations offered during the ninth annual review of the EIAP were virtually the same as those received by the Commission during the previous eighth annual reviews:  1) lowering the 2-for-1 ratio of U.S. to foreign fabric to a 1-for-1 ratio; 2) expanding the program coverage to enable other types of fabrics and apparel items to be included in the EIAP; and 3) changing the requirement that dyeing and finishing of eligible fabrics occur in the United States. 

Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic, Ninth Annual Review

On October 16, 2008, H.R. 7222, the Andean Trade Preference Extension Act of 2008, Became Public Law No: 110-436. Sec. 2 of the Act created the Dominican Republic-Central America-United States Free Trade Agreement ("CAFTA-DR") Earned Import Program–a 2-for-1 matching program for trousers assembled in the Dominican Republic. Under this program the D.R. may ship, duty-free, one square meter equivalent of trousers of third-country fabric for every two sme of trousers of U.S.-made fabric.

The U.S. International Trade Commission (Commission) has announced its schedule, including deadlines for filing written submissions, in connection with preparing a report on its ninth annual review in investigation No. 332-503, Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic, Ninth Annual Review.

April 30, 2018: Deadline for filing written submissions.

August 3, 2018: Transmittal of ninth report to House Committee on Ways and Means and Senate

USITC Reports on Dominican Republic 2-for-1 Program

On July 28, 2016, the U.S. International Trade Commission ("USITC") published Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic.

Seven years after its implementation, the Earned Import Allowance Program (EIAP) is not providing enough incentives to substantially boost Dominican apparel exports to the U.S. market, as intended, reports the U.S. International Trade Commission (USITC) in its publication Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic; Seventh Annual Review.

The EIAP allows apparel manufacturers in the Dominican Republic who use U.S. fabric to produce certain apparel to earn a credit that can be used to ship eligible apparel made with non-U.S.-produced fabric into the United States duty free. The Dominican Republic-Central America-United States Free Trade Agreement Implementation Act, as amended, requires the USITC, an independent, nonpartisan, factfinding federal agency, to evaluate annually the effectiveness of the EIAP program and make recommendations for improvements.

The USITC's seventh annual review was submitted to the U.S. House of Representatives Committee on Ways and Means and the U.S. Senate Committee on Finance on July 29, 2016. Highlights of the report follow.

• Of the 12 registered firms, only 5 firms are currently using the program, the same number reported in the sixth annual review.
• In 2015, U.S. imports of woven cotton bottoms from the Dominican Republic tripled by value to $8.2 million from $2.7 million in 2014 and increased more than fivefold by quantity. U.S. industry sources attributed these increases, however, to incidental larger orders rather than to incentives offered by the EIAP. Moreover, the value and quantity of U.S. imports of woven cotton bottoms under the EIAP in 2015 accounted for less than 25 percent and 41 percent, respectively, of what they were at their peak in 2010.
• U.S. exports to the Dominican Republic of cotton fabrics of a weight suitable for making bottoms rose 13 percent by quantity and 11 percent by value between 2014 and 2015.
• Except for one addition, the recommendations offered during the seventh annual review of the EIAP were virtually the same as those received by the Commission during the previous six annual reviews: 1) lowering the 2-for-1 ratio of U.S. to foreign fabric to a 1-for-1 ratio; 2) expanding the program coverage to enable other types of fabrics and apparel items to be included in the EIAP; and 3) changing the requirement that dyeing and finishing of eligible fabrics occur in the United States. The new recommendation proposed during the seventh annual review was to add countries to the EIAP to foster regional integration and create further opportunities in other CAFTA-DR countries.

BACKGROUND

On October 16, 2008, H.R. 7222, the Andean Trade Preference Extension Act of 2008, Became Public Law No: 110-436. Sec. 2 of the Act created the Dominican Republic-Central America-United States Free Trade Agreement ("CAFTA-DR") Earned Import Program–a 2-for-1 matching program for trousers assembled in the Dominican Republic. Under this program the D.R. may ship, duty-free, one square meter equivalent of trousers of third-country fabric for every two sme of trousers of U.S.-made fabric.

ITC Releases Report on Dominican Republic 2-for-1 Program

On July 24, 2015, the U.S. International Trade Commission ("USITC") published Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic.

Six years after the implementation of the Earned Import Allowance Program (EIAP), the government of the Dominican Republic and U.S. and Dominican apparel industry sources continue to indicate that the program is not providing enough incentives to help reverse the decline in Dominican apparel exports to the U.S. market, as intended, reports the U.S. International Trade Commission (USITC) in its publication Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic; Sixth Annual Review.

The EIAP allows apparel manufacturers in the Dominican Republic who use U.S. fabric to produce certain apparel to earn a credit that can be used to ship eligible apparel made with non-U.S.-produced fabric into the United States duty free. The Dominican Republic-Central America-United States Free Trade Agreement Implementation Act, as amended, requires the USITC, an independent, nonpartisan, factfinding federal agency, to evaluate annually the effectiveness of the EIAP program and make recommendations for improvements.

The USITC's sixth annual review was submitted to the U.S. House of Representatives Committee on Ways and Means and the U.S. Senate Committee on Finance on July 24, 2015. Highlights of the report follow.

• Of the 13 registered firms, only five firms are currently using the program, the same number reported in the fifth annual review.

• In 2014, U.S. imports of woven cotton bottoms from the Dominican Republic totaled less than 8 percent of the value and quantity of imports under the program in 2010, the first full year of the program. Also, U.S. exports to the Dominican Republic of cotton fabrics of a weight suitable for making bottoms fell for the third year in a row, declining by 12 percent by quantity and 19 percent by value between 2013 and 2014.

• The recommendations offered during the sixth annual review of the EIAP were virtually the same as those received by the Commission during the previous five annual reviews—1) lowering the 2-for-1 ratio of U.S. to foreign fabric to a 1-for-1 ratio; 2) expanding the program coverage to enable other types of fabrics and apparel items to be included in the EIAP; and 3) eliminating the requirement that dyeing and finishing of eligible fabrics occur in the United States.

Clients of Agathon Associates may see more information on the Dominican Republic 2-for-1 program at http://agathonassociates.com/textile-pri/cafta-dr/dr-2-for-1.htm.

Preserving CAFTA-DR Benefits a Consideration in TPP Talks Say Pres. Obama

In an April 1, 2014 letter to Danilo Medina, President of the Dominican Republic, U.S. President Barack Obama stated:

"Thank you for your letter concerning our ongoing negotiations toward a Trans-Pacific Partnership (TPP) Free Trade Agreement. I appreciate your concern about the possible impoct of the TPP apparel provisions on our Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR) partners.

"Our CAFTA-DR agreement is important to all of our countries. Our respective textile and apparel industries share a long history of coproduction and partnership agreements that have been mutually beneficial. The United States team of TPP negotiators recognizes the unique nature of the CAFTA-DR in regional economic integration. They are also mindful of the degree to which U.S. suppliers are integrated with producers in the Dominican Republic.

"I have instructed my negotiating team to factor these considerations into the U.S. approach in the TPP negotiations. Since our meeting in Costa Rica in May 2013, United States Trade Representative officials have held extensive meetings with all the ambassadors of CAFTA-DR partner countries on this topic; the Department of State and my National Security Council staff have also met with your Ambassador to discus this topic.

"We will continue to keep your concerns in mind as we move forward."

President Obama's letter, which was made public last week by the government of the Dominican Republic, was in response to President Medina's letter of November 2013, in which he asked the government of the United States to consider maintaining in the Trans-Pacific Treaty of Economic Association (TPP) the integrity of the rule of origin for textile products and apparel because to the contrary, it would bring negative consequences for the textile industry of the signatory countries of the Free Trade Accord (DR-CAFTA).

ITC Finds Dominican Republic 2-for-1 Program Underutilized

In a report released Friday, July 26, 2013, the United States International Trade Commission ("USITC") found that four years after its implementation, the Earned Import Allowance Program ("EIAP") is not providing enough incentives to help boost the competitiveness of Dominican apparel exports in the U.S. market.

The EIAP allows apparel manufacturers in the Dominican Republic who use U.S. fabric to produce certain apparel to earn a credit that can be used to ship eligible apparel made with non-U.S.-produced fabric into the United States duty free. The Dominican Republic-Central America-United States Free Trade Agreement Implementation Act, as amended, requires the USITC, an independent, nonpartisan, factfinding federal agency, to evaluate annually the effectiveness of the EIAP program and make recommendations for improvements.

The report, Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic; Fourth Annual Review, is available on the USITC website here.